Insomniac Hedge Fund Guy

Last year Charlie Munger took much pleasure at castigating Doug Kass as the selected short seller of Berkshire stock.  The utter disdain Munger and probably Buffett had for short sellers was best summed up by Munger’s comments “We don’t like trading agony for money”.  Becky Quick asked Buffet to elaborate on this. BECKY: I’d like to get your take on them. First of all, on short sellers, he said, ‘We don’t like trading agony for money.’ BUFFETT: The reason he said that is because a stock, when you short it, can theoretically go to infinity. When you buy a stock … Read more

Window dressing is a strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund’s holdings.  Playing the contrarian nature of this can be an interesting way to spice up a listless summer.

GoPro IPO and Google’s Nest & Dropcam Deal Leave Ambarella Sitting Pretty By Rick Munarriz   Ambarella (NASDAQ: AMBA ) seems to be hanging around the cool kids these days. Its two biggest clients — wearable camera leader GoPro and surveillance camera speedster Dropcam — are in the news right now, and Ambarella stands to be the welcome beneficiary in both cases. Over the weekend we learned that Google’s (NASDAQ: GOOG ) (NASDAQ: GOOGL ) recently acquired Nest has hatched a buyout of its own. The company behind the high-tech learning thermostats is confirming the purchase of Dropcam that third … Read more

We have recently purchased several of these dogs as insiders have been barking loudly about the opportunity.  Seriously this is one of the few areas in the market where insiders are buying.  Names we own include PSEC, TCRD,CPTA, ARCC. CPTA, FSC, FULL, KCAP, MCC, NGPC, NMFC, OFS, OXLC, PSEC, SCM, TCRD, TICC by: Fredrik Arnold Disclosure: The author is long FSC, CSCO, GE, CVX, INTC, MCD, MSFT, PFE, T, VZ. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it other than from Seeking Alpha. The author has no business … Read more

We are long TIPS, short TLT.  This is a trade that will need leverage to work well but it isn’t very volatile.  Iraq meltdown is a wildcard though and we have a light position on now. Another firm core CPI report makes the Fed’s job trickier  We have been blogging about this for some time now.  Inflation is inevitable if easy money Fed policy persists.  That’s what they want.  Can they shut it on and off without creating a lot of volatility?  No way. Quoted from JP Morgan Michael Feroli Both the headline and core Consumer Price Index (CPI) came … Read more

Ebay will be well served to move quickly to replace departing PayPal President David Marcus with their recent purchase of Braintree President and Founder, Bill Ready BILL READY CEO , Braintree Bill Ready is the CEO of Braintree, one of the most innovative and influential startups in the payments industry. With its emphasis on mobile-first experiences, elegant tools for developers, and incredible customer support, Braintree developed industry-leading payment solutions that power many of the world’s most disruptive new businesses, including Uber, Airbnb, OpenTable, and Rovio/Angry Birds. Braintree was acquired by eBay for $800 million in 2013. At PayPal, Bill continues … Read more

Value investing is considered riskier than growth investing.  At least that’s what they teach you in modern portfolio theory as taught in business schools today.  Value investor’s want to purchase a stock trading below what they consider its intrinsic value.  Value investors buy more of a security as the price declines if their fundamental valuation thesis remains intact.  They reason it’s on sale and the sale price just got better.  Convinced of their analytic ability, they continue to buy on the way down.   Sometimes this approach is dead wrong and the value investor realizes that his perceived value is … Read more

Everyone in my business is consumed with beating the market.  What if I told you I knew a sure fire way to beat the market?  It’s simple really.  Buy the SPY, the S&P 500 ETF, on margin.  You’ll beat the market.  You will also lose more on the downside of course.  This helps put it into perspective.  We’ve had a one way game since 2009, now running into one of the steepest and longest bull markets in history.  Perhaps we started from a low base after the crash of 2008.  Perhaps we have benefited from zero interest rate policy of … Read more

The PPI number came in hot.  I expect the CPI number tomorrow, Thursday, to come in blazing hot.  I keep looking for asymmetrical ways to express this view.  In other words, limited downside, significant upside.  The utility stocks are my preferred play although there may be a few others including long gold. Producer prices increased 0.6% in April, up from a 0.5% increase in March. The consensus expected producer prices to increase 0.2%.  Ex-Fed Chairman Alan Greenspan said although he doesn’t see an imminent rise in prices, it’s a mistake to believe that inflation isn’t a threat. Greenspan spoke in Washington … Read more

STAG-FLA-TION with a hot PPI and CPI print this week, talking heads will be all over the return of stagflation. Sub-par economic growth and rising input costs across the board will make for interesting headlines soon.  The stock market doesn’t like stagflation. It’s the worst of all worlds although a little pick-up in inflation will be heralded as a good thing at first.

We are positioned for this trade with shorts on the XLU and put option on it as well as puts on the Vanguard Utility ETF, VPU.  Both of which have made nice runs this year and could pull back some on hotter than expected numbers.  It’s a somewhat asymmetrical trade as their doesn’t seem to be huge risk on the downside and some nice alpha on the upside. May 11, 2014 4:50 p.m. ETThe next small steps up in inflation could set off big tremors in financial markets.The two main U.S. inflation gauges, the Labor Departments consumer-price index and the Commerce … Read more

We wrote in our quarterly letter that we expected inflation to rise more than expected.  The CPI and PPI next week should give the new Fed Chairperson, the chance to exhibit her inflation fighting credentials.  Expect some tougher talk of the bond vigilantes and a sharp downward reaction to interest rate sensitive utility stocks.  Our next largest position after our long Apple stakes is a short position on the XLU.    May 4, 2014 7:42 p.m. ETT The improving U.S. jobs market is impaired by stubborn, slow growth in wages, but recent results from companies show the outlook for some workers may be brightening. WSJs … Read more

We mentioned in our quarterly letter than we had picked up small stakes in handful of beaten down biotech stocks that insiders were buying.  One of those was Merrimack, the largest percentage gainer in the market. We have been following Merrimack pharmaceuticals for a few months now. The cluster buying from insiders caught our eye at the end of last year. They have multiple trial drug categories; their most promising is a pancreatic cancer drug in the final trial stage. Results of this trial were to be finalized and released in the 2nd quarter of 2014. Today, with the news … Read more

I believe that you will soon see a noticeable and rather unwelcome uptick in inflation due to the rise in asset prices and the improving employment picture. The Federal Reserve has a dual mandate, to strive for full employment and to keep inflation in check. In order to help the nation recover from the deep recession of 2008, the Fed has used zero interest rates and quantitative easing, QE, as policy tools. Cheap money has driven up asset prices across real estate, the stock market, collectibles and art, and now it’s having an impact on real prices. The Fed has … Read more

When I trained brokers at Paine Webber we used to bring in mutual fund wholesalers to pitch us their latest and greatest funds.  It was an optional meeting and had good attendance.  After all it was a free lunch without leaving the building.  One day out of frustration, I told the wholesaler we wanted to do something different today. “Normally you come in here and tell us about the latest and greatest fund that you have.  We go out and sell  your best fund to our clients and all too often, it turns out to be your worst performing fund. … Read more

  DJ United CEO Back in Market; That’s Been Harbinger — Market Talk 15:48 EDT – United Continental (UAL) CEO Jeff Smisek’s purchase of 20K shares Monday “bodes quite well” for the airline’s stock if his history of buying at bottoms the past several years was repeated this week, says Wolfe Research. The firm, which says the $792K purchase is the 6th-biggest insider purchase of the past quarter-century in the airline space, notes the top 10 by executives logged an average 41% return the next 6 months. For Smisek, his 5 other open-market buys saw his company’s stock outperform the … Read more

Why stocks may be sniffing out inflation.  Is it time to buy gold or gold miners?  We think its a favorable trade.  It wasn’t that long ago that it was gospel to have 5-10% of a conservative portfolio in gold.  The price of gold plunged 28% last year. Now that everyone has been punished for following prudent advice, it might just be the perfect time to reconsider.  Two ideas we have for this is the GLD ETF and the largest gold miner,  Barrick Gold.  ABX is in talks with Newmont Mining to merge the two large miners into the world’s largest gold mining company. … Read more

Trading Desk Photos – Business Insider.   Yours truly  about 17 down or so. The  one from Park City of course. Not a bad place to have to trade from.

Einhorn Sees Tech Bubble – Business Insider. Hedge fund manager David Einhorn, who runs Greenlight Capital, says that we’re witnessing a tech bubble, CNBC reported citing his fund’s quarterly investor letter. “Now there is a clear consensus that we are witnessing our second tech bubble in 15 years. What is uncertain is how much further the bubble can expand, and what might pop it,” Einhorn wrote in the letter. I couldn’t agree more but it is a very painful short road to stake out. Read more: http://www.businessinsider.com/einhorn-sees-tech-bubble-2014-4#ixzz2zdxnMVfU

The Momentum Stock Meltdown Has Exposed A Big Flaw In A Very Popular Investing Strategy Passive investing, or investing in a benchmark index and letting the money ride, is probably the most time-tested and most prescribed investment strategy in the world.However, the recent sell-off in the momentum stocks might have exposed a flaw in strategies that take passive investing too literally. via The Flaw In Passive Investing – Business Insider.

The relentless cram down of IPOs has come to a screeching halt as 4 of the 8 deals to price Thursday night got postponed.  The insane valuations many Internet stocks traded at and still trade at got taken to the woodshed.  Amazon, Facebook, LinkedIn, Google, Yelp, and many others not as well known ended one of the bloodies tech weeks since 2000.  The selling in those names may have climaxed for now as many could stage some brief but sharp reversals.  Also income tax due April 15th probably had something to do with the poor market action for the bulls. … Read more

http://online.wsj.com/news/articles/SB10001424052702303847804579479841325311678?mg=reno64-wsj

Somewhat counter-intuitively, history shows that buying the market at a lower relative P.E. is likely to be hazardous to your financial health in the short term.  It is important to mention that these results are totally skewed by your time basis.  For example the S&P 500 total returns since January 2001 thru Feb 2014 are cumulative 82.08% yet the returns immediately after 2000 were -11.88% year 2001, -22.11% year 2002.  Similar phenomenon occurred in year 1973 when the DJIA had a P/E ratio of nearly 7x.  That year in 1973 the DJII returned -16.3%, and the following year, 1974, was … Read more

I’m glad to see someone else echoing my view.  Google seems the most vulnerable in my opinion as the only model the company has is an ad model.  At stunning figure seldom mentioned is that the Safari browser (Apple) dominates mobile mind share with something like 40%.  The article fails to even mention Apple as an advertising competitor.  Apple may have been slow get into the ad business, but they are there now and if they get good at it, watch out.  The market share is going to come out of someone’s hide.  Google has the most share so consequently the … Read more

Bright Horizon Family Solutions announced a secondary this afternoon as we expected.  Glad we are short the stock, not happy we are not short more.  After trying to cover small amounts with almost none for sale, the underwriters, aka manipulators decided to slam down 7 million shares. Now I know who has been propping it up while they picked the pockets of the public.   I guess we’ll buy ours back then.  This is just another example of insiders unloading stock at a 52 week high right before their underwriters slam the stock down with a massive secondary.  If you … Read more

Game, Set, Match. I can’t imagine Amazon or Google can be too happy about this. If it comes to pass, two virtual monopolies will band together and become one, unstoppable ,unmoveable force. I just for one hope and pray that Comcast will let Apple do their customer service as well as set top boxes. I still have a lot of doubts about this actually happening as the Comcast X-1 Infinity set top boxes are quite advanced now and I don’t think Comcast needs Apple as much as Apple needs them. You can see why Google is intent on building out … Read more

http://blogs.barrons.com/focusonfunds/2014/03/21/buy-russia-after-the-plunge-a-crazy-idea-that-usually-works/?mod=BOLBlog Controversial, but apparently it works well for the patient investor. I don’t believe Putin will screw the pooch. He acts like a man who knows exactly what he is doing. Then again from what I have read, he may be the richest man in the world with a $75 billion net worth. He owns 5% of Gazprom amongst other holdings.

lPrintBy ALEXANDRA SCAGGS CONNECT REUTERS   Five-years after U.S. stocks hit their financial-crisis low, Goldman Sachs strategist David Kostin says it’s going to be an uphill battle for stocks to move significantly higher this year.Mr. Kostin points to the level of profits, expected earnings growth rates and valuations as measured by price to earnings multiples. “Given the high starting point of all three metrics, it is hard to identify any one of these that will climb significantly during the coming year.”Goldman expects the S&P 500 to finish the year at 1900, roughly 2.4% above where it was Monday morning.Looking back … Read more